Rabobank’s latest commodities outlook says global agriculture commodity markets will shift from a squeeze to a surplus but prices will remain volatile
New York – Global agricultural commodity markets are expected to shift from a squeeze to a surplus in 2013 – and that’s despite this year’s historic low levels and record high prices for agriculture commodities.
So says Rabobank in its latest commodities outlook report, Outlook 2013 – Rebalancing on a Tightrope.
The report adds that prices will remain volatile. Particularly for grains and oilseeds, says Rabobank, a supply squeeze will drive prices higher in the first half of the year, followed by price weakening as production rebounds.
The report analyzes how global macro uncertainty is shaping the agricultural commodity markets specifically the impact of a weak US dollar on prices, as well as how speculative money flows will continue to drive trading patterns.
The report also provides comprehensive 2013 price forecasts and price comparisons against 2012 forecasts across the wheat, corn, soybeans, soy oil, soymeal, palm oil, sugar, coffee, cocoa and cotton sectors.
Key themes from the 2013 report include:
• Grain and oilseed price outlook: Prices will be squeezed higher in the first half of 2013, then ease in the second half as production recovers and creates a global surplus. Low global inventory levels will make prices vulnerable to high volatility and production risks. Global stocks-to-use of corn, wheat and soybean will rise just 1.9 points to 19.9% and remain below 2011/2012 levels, sustaining prices in the second half of the year. Multi-season surpluses will be required to rebuild inventories and rebalance fundamentals.
• Soft commodity price outlook: Compared to grains and oilseed, soft commodity (sugar, cocoa and cotton) markets are more in equilibrium going into 2013. Fundamentals are balanced in response to high prices (i.e. sugar and cotton), and in some cases slight surpluses have been built in recent seasons. Soft commodities have already moved through the high price/increased supply/downward correction cycle the banks predicts for grains and oilseeds in 2013, and soft commodities have fallen to levels Rabobank deems as fair value. Look for unwinding of investor short positions and commercial buying to keep markets and prices flat in 2013.
• 2013 Bullish and Bearish Calls in the Agri Commodity Complex: Grain and oilseed prices are expected to be the most volatile, with a rally in Q1 giving way to weakness for the remainder of the year. Soymeal will be the worst performing commodity through the year. Palm oil could have the most upside as Chinese imports and biofuel demand drive prices higher after the 2012 sell off.
While global macro uncertainty continues to cloud the outlook for the agriculture commodity market, Rabobank says it does not see a material slowdown in global demand.
In fact, Rabobank forecasts world GDP to increase 3.75% in 2013, sustaining demand even as agri-markets are challenged to rebuild global stocks despite precariously balanced fundamentals.
Price rises in Q1 will slow demand and encourage increased global production, resulting in a rebalancing of fundamentals and weaker price outlook in the second half of 2013.
Still, the lack of buffer inventory leaves the market exposed to another season of volatility and uncertainty.
“Weak global economic growth and continued macro uncertainty may cause a slight drag on demand for agricultural commodities in 2013,” says Luke Chandler, global head of Rabobank’s Agri Commodity Markets Research (ACMR) department.
“However, a low U.S. dollar will provide support for prices. Speculative money flows will also remain very sensitive to macro uncertainties, with the risk-on/risk-off trading pattern of 2012 likely to continue. Using the S&P Agri Index as a proxy for our commodity forecasts, we expect a decline in agricultural prices of around 10% in 2013.”
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